AMD 2008 Annual Report Download - page 154

expected to be less than $500 million, the Company will be required to provide a cash collateral equal to one
third of the balance outstanding under the revolving credit facility. The Company evaluated its guarantee under
the provisions of FIN 45 and concluded it was immaterial to the Company’s financial position or results of
operations.
In January 2009, Qimonda filed an application with the local court in Munich to commence insolvency
proceedings. The local Munich court appointed a preliminary insolvency administrator to act on behalf of
Qimonda. Under the AMTC revolving credit facility, Qimonda’s application for insolvency is considered an
event of default and upon the demand of two thirds of the lenders, all the amounts outstanding under the credit
facility may be immediately due and payable. AMTC has received a waiver from the lenders to waive the event
of default until February 27, 2009. Under the BAC term loan, an insolvency of a partner does not constitute an
event of default. However, an event of default may be triggered under the BAC term loan under certain
circumstances, such as an event that results in a material adverse effect on the joint venture, or if a partner ceases
to continue its business or does not fulfill certain material obligations.
Warranties and Indemnities
The Company generally warrants that microprocessor products sold to its customers will, at the time of
shipment, be free from defects in workmanship and materials and conform to its approved specifications. Subject
to certain exceptions, the Company generally offers a three-year limited warranty to end users for microprocessor
products that are commonly referred to as “processors in a box,” a one-year limited warranty to direct purchasers
of all other microprocessor products that are commonly referred to as “tray” microprocessor products, and a
one-year limited warranty to direct purchasers of embedded processor products. The Company has offered
extended limited warranties to certain customers of “tray” microprocessor products who have written agreements
with the Company and target their computer systems at the commercial and/or embedded markets.
The Company generally warrants that its graphics, chipset and certain products for consumer electronics
devices will conform to the Company’s approved specifications and be free from defects in material and
workmanship under normal use and service for a period of one year beginning on shipment of such products to
its customers. The Company generally warrants that ATI-branded PC workstation products will conform to the
Company’s approved specifications and be free from defects in material and workmanship under normal use and
service for a period of three years, beginning on shipment of such products to its customers.
Changes in the Company’s potential liability for product warranty during the years ended December 27,
2008 and December 29, 2007 are as follows:
Year Ended
December 27,
2008
December 29,
2007
(In millions)
Balance, beginning of year ............................ $15 $26
New warranties issued during the year ................... 35 25
Settlements during the year ............................ (15) (25)
Changes in liability for pre-existing warranties during the
year, including expirations ........................... (16) (11)
Balance, end of year .................................. $19 $15
In addition to product warranties, the Company, from time to time in its normal course of business,
indemnifies other parties, with whom it enters into contractual relationships, including customers, lessors and
parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold
the other party harmless against specified losses, such as those arising from a breach of representations or
covenants, third-party claims that the Company’s products when used for their intended purpose(s) infringe the
intellectual property rights of a third party or other claims made against certain parties. It is not possible to
determine the maximum potential amount of liability under these indemnification obligations due to the limited
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